USDJPY has moved off it the 96.10 low which was seen in very early London hours. Even so, the JPY is holding onto significant gains vs the USD and also on the crosses. Heavy losses in stock markets in the US and Asia overnight are coincide with the JPY's overnight gains, the better tone of stocks in European hours has relieved some of that demand. The approach of key technical support at 917 in the S&P will be watched this afternoon.
As expected the BoJ left rates unchanged at 0.1% at its regular meeting. While it had little market impact the BoJ upgraded its economic outlook stating that conditions have begun to stop worsening and are likely to show clearer evidence of levelling out over time.
The AUD has had a positive session despite the move away from risk implied by the overnight stock market falls and JPY gains. The release of the minutes of the June RBA meeting encouraged speculation that RBA rates have now bottoming. While the RBA included the warning that rates could again go lower, the minutes state that board members did not see a pressing case for further action. Given that Australian Q1 GDP, employment and confidence data have subsequently beat market forecasts the AUD found buyers on the news though it has failed to move beyond AUD/USD0.8100 this morning.
EUR/USD found a bottom in Asian hours and pushed higher from the 1.3750 level. While confidence in the ability of the Eurozone economy to recover over the coming months has been undermined by concerns over the outlook for its banking sector, this morning's profit-taking on short EUR/USD positions found further encouragement in the better than expected German June ZEW survey. The sentiment index rose to 42.7 in June from 28.5 in May. The current sentiment index rose for the first time since September 08, moving up 3.1 points to -89.7. The move higher in EUR/USD has failed to extend beyond 1.4000.
The release of the UK CPI data was stronger than expected at 2.2% y/y. Contrary to market expectations the index again stayed above the BoE's 2.0% inflation target. This will further diminish fears over deflationary risk. While base effects suggest inflation will fall further in the months ahead, on the margin the stronger data could encourage speculation that the BoE could bring forward rate hike fears sooner than previously expected, though the focus of policy is set to remain expansionary for some months yet. EUR/GBP has probed a touch lower, though most of this morning's rise in cable is on the back of the move higher in EUR/USD.
This afternoon, the market will be keeping an eye on the BRIC conference currently underway in Russia. US May housing starts and industrial production data will be keenly watched. US PPI and consumer confidence data is also due.
